Federal employees, on average, earn 16 percent more than private sector workers, according to a new study released by the Congressional Budget Office (CBO). The CBO report was in response to a request from Sen. Jeff Sessions (R-AL), ranking member of the Senate Budget Committee, to determine how federal employee compensation compares with that of private sector workers.
CBO studied data from 2005 to 2010 for a sample of households and employers to compare wages and benefits of federal and private sector workers with similar work characteristics. The study endeavored to account for differences in characteristics that affect workers’ compensation including education, work experience, occupation, location, and demographics (such as age, sex, race, etc).
CBO reports that while the difference in total compensation is 16 percent, federal workers earn only 2 percent more in wages than private sector employees “after accounting for the differences in job-related and demographic characteristics.” CBO speculates that the small difference may be due to “the constraints of the federal pay system, which makes it harder for managers to reward the best performers or to limit the pay of poor performers.”
On the other hand, the difference in benefits (including health insurance, retirement, and paid vacation) provided to federal employees is much greater, 42 percent. CBO attributes the wide difference in benefits to the availability of defined benefits plans to most federal employees. Under these plans, payments are made under a specific formula such as length of service and pay levels. These plans are increasingly rare in the private sector.
CBO data also show that the difference in earnings varies greatly among education categories. For example, compensation for federal employees with a high school education or less averages 36 percent more than the private sector. But, the federal employee advantage drops to 15 percent for workers with only a bachelor’s degree. And, for workers with a professional or graduate degree, federal employees earn 18 percent less than their private sector counterparts, according to the CBO report.
CBO cautions that even after adjusting for differences in job-related characteristics, it is difficult to make absolute assumptions regarding compensation differences between federal and private sector workers. Other factors, according to CBO, affect compensation levels that are difficult to quantify, such as “motivation or effort.” Also, averages tend to mask the specific effect of general characteristics. For example, as the CBO report states, “federal workers tend to be older, more educated, and more concentrated in professional occupations than private-sector workers.” This point has been made by Office of Management and Budget (OMB) and Office of Personnel Management (OPM) officials as a reason for differences in compensation levels.
In 2011, the federal government employed some 2.3 million civilian workers (about 35 percent in Defense) at a cost of about $200 billion, according to CBO. Federal civilian employment makes up about 1.7 percent of the total US labor force.
It is important to remember that for years the private sector paid more and had better benefits. It would be interesting and revealing to see the breakdown by region as my guess is that those federal workers around Washington DC inflate the overall reported figures.